Euro Awaits Decision Day, UK Retail Sales Next

Decision day for the euro at the EU summit, or not, German and Eurozone PMIs expected to soften, UK public finances and retail sales for June expected to improve, China PMI contracts

Todays EU summit could well be an inflection point for the single currency with EU leaders attempting to get some form of deal with respect to a new Greece bailout package, that wont be treated as a default by the market, and wont be treated as another fudge. Market patience has pretty much run its course, a fact acknowledged across Europe with EU commission Barroso berating the ECB, as well as French and German leaders for their inability to get ahead of the crisis.

Reports that Merkel and Sarkozy had managed to reach some form of common ground in a meeting overnight has sent the euro higher in Asia.

There are a number of options being pondered, one of which is a bank tax to help fund a bailout of Greece, while there is also a partial or selective default, as well as an outright default, neither of which is the preferred option. There has also been some talk of increasing the flexibility of the EFSF and increasing the size of it, though how that could be done without affecting Germanys credit rating is not quite clear, and it is unlikely the Germans would voluntarily agree to increase their borrowing costs in this manner.

Before that however there is the small matter of some economic data in the form of flash PMI manufacturing data for July for Germany and the Euro zone and it is likely to have dropped back slightly given the current political and economic turmoil in Europe at these times, though it is still expected to be above 50 by some margin.

In the UK June retail sales are expected to improve from Mays awful 1.6% decline, bouncing back by 0.5%, however they are still expected to paint a picture of an economy just about bumping along the bottom, reinforcing the concerns shown in yesterdays Bank of England minutes.

The June public finances data will also be closely scrutinised for to ensure that the Chancellor remains on course in his deficit cutting plans for 2011. April and May werent exactly great starts to the year so Mr Osborne will be hoping for a figure below expectations of the 10.4bn expected and certainly he will be hoping for an improvement from Mays 15.2bn.

In China in the first signs of a contraction in manufacturing activity showed the HSBC flash Manufacturing PMI come in at 48.9, raising fears that the Chinese economy is slowing down too quickly.

In the US the debt ceiling negotiations continue to rumble on while weekly jobless claims are due out later.

BOTH of our EURUSD trades have been executed, with the long hitting all limits and the short working.

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